Most people have their attention focused on earning money. But what you do with that money is just as important. Once you have the money, there are four main things that you can do with it:

1) Spend it

2) Save it

3) Invest it

4) Give it away.

You probably don’t need a tutorial on how to spend money. Of course, most people make both wise and unwise spending decisions throughout their lives, but spending decisions tend to be very personal. The same goes with saving and giving—most people feel differently about how much of their money they believe they should save and give away.

Of the four things that can be done with money, investing might be the least understood. Unfortunately, there aren’t many classes in high school or even college where the basics of investing are taught, so it’s up to you to learn more about investing for yourself to help improve your personal financial management.

Difference Between Saving and Investing

For starters, it’s important to understand that saving and investing are not the same thing. Saving is putting money aside in a risk-free instrument so that it will be there for you at some time in the future. This could involve literally stuffing cash in a mattress, or more likely today, putting it in an FDIC-insured bank savings or money-market account, which may pay a very small amount of interest.

Investing, on the other hand, involves putting money in a financial instrument that entails some degree of risk in order to hopefully earn a return. In general, the higher degree of risk an individual is willing to assume, the higher the potential return he or she might earn.

There are many different types of investment vehicles available to investors today. These range from low-risk, low-return instruments that offer a relative high degree of safety and a low degree of volatility, to instruments that offer a high potential return in exchange for a relatively high risk that the principal (or amount invested) could be lost.

In constructing an investment portfolio, individuals should gauge their level of risk tolerance—or how much they are willing to risk losing some or all of their money—with their return objectives and their investment timeframe—or how long until they will need to access the money they have invested.

The Sensible Middle Ground

“Somewhere between the extremes of investments with very low levels of volatility and risk and investments with high degrees of volatility and risk, there lies what we call the ‘sensible middle ground of investing’” says Martin Walcoe, EVP of David Lerner Associates headquartered in Syosset, NY.

Think of it as a paradigm with three levels that encompasses the following asset allocation model:

1. The largest portion of the portfolio should be made up of investments that are income or yield driven and typically the call value and/or face amount is paid at the call date, maturity or final pay down. We would include in this category taxable and tax-free municipal bonds, CMOs, treasuries and other zero coupon bonds.

2. The next portion of the portfolio consists of investments that often offer higher income and have the potential for capital appreciation, but do not have the underlying safety of government guaranteed securities. We would include in this category non-publically traded REITs and income-based mutual funds.

3. The final portion of the portfolio includes market driven securities. While upside potential may be greater, the investor faces increasing uncertainty. We would include growth mutual funds in this category.

Of course, every individual’s investment goals and objectives will be different, so this investment philosophy isn’t “one size fits all.” We take into consideration the individual’s entire financial picture, including how assets outside of the firm are placed, when figuring asset allocations. Adjustments are also made in consideration of each individual’s age and income needs.

There are risks inherent in investing.

Certain investments are offered by prospectus. Investors should read the prospectuses carefully and consider the investment objectives, risks, charges, expenses and other information before investing. The prospectuses may be obtained from David Lerner Associates, Inc. by calling 1-800-367-3000. Member FINRA & SIPC.